UK state pension set to rise by 2019/2020

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18 Oct, 2018

UK state pension set to rise by 2019/2020

The state pension in the UK is forecast to rise significantly by 2019, as the pension pot increases will be based on wage growth rather than inflation, a recent report reveals. 

State pensions will increase by £220 during 2019-2020, following a drop in the country’s inflation which triggered the government’s triple lock policy. 

A report issued by the Office for National Statistics (ONS) recently revealed that inflation fell to 2.4%, down from a previous 2.7% recorded in August. 

The drop means that inflation is now lower than wage growth, which stood at 2.6% in July. Due to this, wage growth will determine how much the state pension will rise next year, and not inflation. 

The government’s triple lock policy, which protects the pension pot, states that the state pension will rise annually depending on inflation or average earnings – whichever is higher. 

The full state pension is set to be worth £168.60 per week, up from an above-inflation rate of £164.35 a week. The rise will amount to roughly £220 per year as of April 2019. 

Hargreaves Lansdowne senior pension analyst Nathan Long stated that, “having at last some secure income in retirement is important for nearly everyone, making the state pension fundamental to the UK’s pension system.”

He added that “increasing payouts using the triple lock keeps pensioners insulated from the difficulties workers are facing, where inflation is rising faster than wages, but this will do little to bolster the pockets of pensioners living in poverty.”

The government maintains its commitment towards its triple lock policy, for the remainder of its duration in Parliament. 

“The government is committed to maintaining this policy for the remainder of this parliament but there is increasing demand for it to be scrapped thereafter, as many believe it has served its purpose.”

The pension lifetime allowance (LTA) is also linked to the CPI inflation rate of September 2017. The LTA is the maximum threshold people can put into their savings, while also evading tax charges. 

This means that the LTA will witness a significant hike in the next two years from £1,030,000 to £1,054,800, equating to an extra £24,800 saved excluding tax charges. 

According to a representative from pension company Aegon, “the lifetime limit won’t just affect the wealthiest.” 

Kate Smith believes that “people on middle incomes who have been saving into a defined pension for a long time can also be caught by the tax hire that comes with surpassing the allowance.

“However, with speculation about the Chancellor targeting the lifetime allowance in the Budget in just under two weeks, let’s hope this increase is not undone.”